Integrated Synthesis of Media, Society and Behavior

Facebook limited by ad budgets

Facebook’s new releases and plans were the talk of the week In the tech industry (by the way, not the only industry that matters!). Probably for good reason. Facebook’s size and growth is very impressive and the service is obviously very useful to millions of people. However I’m not ready to proclaim them the most important tech business or even a fundamental component to the web.

Facebook is a collection of many existing ideas packaged better than anyone else has been able to do it. Even the new LIKE button is basically digg done in a friendly way. And yes it’s useful but not entirely life changing. Will it be as important as the hyperlink? Some ask that… I have no idea how to answer that but without hyperlinks the “like” thing and social web doesn’t work. So by that fact I’m inclined to say no.

Is analyzing the social graph for information a better approach than page rank based web search to help people get to the information they want? Not really, just different. Fb gives us new ways to find things but that doesn’t mean it displaces other methods. Last I checked Email, Im, web search, texting were still growing…

Is facebook as a single sign on service significant enough to be a can’t do without piece of the infrastructure? Not yet. If it were somehow to get into the enterprise and be integrated fundamentally into operating systems, then yes. I’m not sure for security reasons that fb can make that happen.

Forget all the technical discussion about fb, it’s the business model that ultimate limits fb. Its revenue model is dependent on advertising. There’s nothing in the history of advertising based businesses that suggests that fb can escape the limits of that model. Google is by far the most successful advertising based business ever created. Its growth is slowing and probably will top out at 50 billion in revenue. There simply isn’t enough advertising spend in the market to sustain growth passed that. New competitors and options constantly pull at ad budgets and keep the advertising world forever fragmented. (this is a highly simplified explanation but directionally correct).

Google has indicated the truth of this logic by launching into office software, mobile phones, cloud computing and other transactional / sell a good or service to a customer type businesses. Google recognized a long time ago that an ad only business was just not going to move them far into the future. Recently In the tech world apple has shown that their are billions more dollars that are more quickly earned by actually selling stuff to people.

So at some point fb will face a similar situation. Is everything fb is building setting itself up to one day be able to actually sell something to customers or will it forever rent eyeballs, clicks and likes? Fb’s one billion in revenue is awesome for a company so young. It will grow for the next 15 years… That sounds impressive… But it really isn’t that far into the future… And the next major advertising competition is probably already up and running…